There are seven kinds of endorsement. types of endorsement: Endorsement is nothing but a part of negotiation. Negotiation is the transfer of an instrument by one party to another so as to constitute the transferee a holder of that instrument. A bearer instrument can be transferred by mere delivery but an order instrument can be transferred by endorsement.
Endorsement in Blank :
Where an endorsement on a bill of exchange specifies no endorse, it is an endorsement in blank. A bill so endorsed becomes payable to bearer. The same term applies to the endorsement of cheques. In such a case, so long as the instrument continues in blank, the property in the instrument may pass by mere delivery, in the same manner as an instrument payable to bearer.
Any holder may convert a blank endorsement into full endorsement by writing above the endorser’s signature a direction to pay the instrument to, or to the order of, himself or some other person.
Section 54 of Negotiable Instruments Act provides: “Subject to the provisions hereinafter contained as to crossed cheques, a negotiable instrument indorsed in blank is payable to the bearer thereof even although originally payable to order.”
Endorsement in Full
If the endorser adds a direction to pay the amount specified in the instrument to, or to the order of, a certain person, then the endorsement is said to be in full. By inscribing his name on the back of an instrument, the endorser guarantees to his immediate endorsee or a subsequent holder in due course, that at the time it left his hands, he had a good title to it and that it was genuine in every particular. He also attests thereby, that all the endorsements made prior to this, are genuine.
The holder of a negotiable instrument indorsed in blank may without signing his own name, by writing above the indorser’s signature a direction to pay to any other person as indorsee, convert the indorsement in blank into an indorsement in full, and the holder does not thereby incur the responsibility of an indorser. If a negotiable instrument, after having been indorsed in blank, is indorsed in full the amount of it cannot be claimed from the indorser in full, except by the person to whom it has been indorsed in full or by one who derives title through such person.
Specimen of Endorsements in full :
1) Pay to Ramesh Pawar or Order
2) Pay to Ashutosh Sharma
Ordinarily, an endorser binds himself to pay upon no other condition than the dishonour of the instrument on due notice of dishonour to him. However, if he likes he may make his own liability on the instrument subject to a condition, in which case the endorsement is termed a conditional endorsement. Again, he may make his liability dependent upon the happening of a contingent event or make the right of the endorsee to receive the payment in respect of the instrument dependent upon the happening of such an event.
The conditions thus added may be either conditions precedent or conditions subsequent. In the former, no right to recover the amount passes to the endorsee, until the fulfilment of the conditions. If it be a subsequent condition, the endorsee’s right is defeated on its fulfilment. Thus, if the endorsement is ‘Pay to X if he returns from Mumbai within a year’, then the right to receive payment becomes absolute only if Mr. X arrives within a year from the date of the endorsement on the instrument. The condition attached to endorsements does not affect the negotiability of the endorsement endorsed.
It is the endorsement by which the endorsee’s right of negotiating the instrument endorsed is restricted or excluded by express words. Sometimes, a restrictive endorsement may merely constitute the endorsee, as an agent, to endorse the instrument or to receive its contents for the endorser, or for some other specified person. For example, if Mr. A.K.Agrawal, endorses any negotiable instrument payable to order as ‘Pay Mr. R.K.Goyal for the account of Mr. S.K.Garg’, Mr. A.K.Agrawal will be restricting the negotiability of the instrument thus endorsee
Sans Recourse Endorsement
In terms of Section 52 of Negotiable Instruments Act, an endorser may, by express words in the endorsement, exclude his own liability thereon. This is known as ‘Sans Recourse’ endorsement, or ‘without recourse’ endorsement. Thereafter if he again becomes the holder the instrument, all the intermediate endorsers shall be liable to him. An endorser, who endorses without recourse, cannot be held liable, if the instrument is dishonoured.
An endorser may also lay down a condition that the right of the endorsee to receive the amount would depend upon the happening of an event which may or may not happen. This would be a conditional endorsement. An endorser may endorse the instrument for the specific purpose of collection. Thereafter, all further transferees shall only have a restricted right on the basis of the endorsement.
A facultative endorsement is one by which the endorser, by express words, abandons some rights or increases his liability under the instrument, e.g., by using after signature, words such as ‘notice of dishonour dispensed with’ or ‘waiver of notice of dishonour’ or notice of dishonour not required’. The effect of facultative endorsement is to make the endorser liable, though otherwise under the Negotiable Instruments Act, 1881, he may not be liable.
Example : Pay A or order. Notice of dishonour waived
Partial Endorsement :
No writing on a negotiable instrument is valid for the purpose of negotiation if such writing purports to transfer only a part of the amount appearing to be due on the instrument. But where such amount has been partly paid, a note to that effect may be endorsed on the instrument which may then be negotiated for the balance.
As a rule, where part of the amount due on the negotiable instrument is to be transferred by an endorsement such endorsement is a partial endorsement and is invalid. This is because a personal contract cannot be apportioned. Only when the amount is partly paid, and such fact is noted on the instrument, the balance can be negotiated by endorsement.
Illustration : The maker of a promissory note for Rs. 5000/- pays Rs. 2,000 and the fact is noted on the instrument. The holder can negotiate the note for the balance amount of Rs. 3,000/-.
But take a case like this : A is the holder of a bill of Rs. 1,000/-. A endorses it thus : “Pay B or Order Rs. 500”. This is a partial endorsement and invalid for the purpose of negotiation.